In Knight‟s (1921) view, firm organization, profit and loss, and entrepreneurship are inex
tricably
linked. These phenomena arise as an embodiment, a result, and a cause, respectively, of
commercial experimentation
a view founded on a particular ontology of the world as
essentially open
-
ended and not deterministic (1921: chapter 7). Few econom
ists have followed
Knight in linking the firm, profit and loss, and entrepreneurship,
1
especially from his
philosophical starting points. And yet, as we noted in the beginning of this book, there are many
good reasons to treat the theory of entrepreneurship and the theory of the firm together. Such a
synthesis informs many foundational ques
tions in economics, business strategy, and public
policy: Can we meaningfully address entrepreneurship without considering the organization in
which such entrepreneurship takes place? How does the structure of the firm influence
entrepreneurial actions? Ho
w does firm organization (e.g., the allocation of residual income and
control rights) affect the quantity and quality of entrepreneurial ideas? And so on. To answer
theses, we need to bring the theory of the firm and entrepreneurship literatures into close
contact.
And yet, the important connections between these two bodies of literature have been largely
overlooked. We seek to identify and establish some of
those connections in this and the next two
chapters.